California, Still Dreaming

All the leaves are brown, and the budget is still red, even with Jerry Brown’s big income and sales tax hike the voters foolishly approved back in November. The latest entirely predictable piece of news was reported yesterday. The Wall Street Journal headlinetells the story succinctly: “California Budget Hit By Facebook’s IPO.” Wait a moment: how exactly is a budget “hit” by the creation of massive new liquid wealth? It seems the state had counted upon getting $1.9 billion in capital gains taxes from Facebook’s debut as a publicly traded company, but since California has unfriended the entire business community it is not surprising that the take will only be about $1.3 billion. (Needless to say, you can’t run a budget on one-time IPOs anyway.)

Meanwhile, rumors are flying around Sacramento that Gov. Jerry Brown is about to go full Moonbeam on us again, and may call in his upcoming State of the State address for California to raise its current “renewable portfolio standard” for electricity from the current ridiculous target of 33 percent by the year 2020 to 40 percent. More: he might even call for banning any future construction of gas-fired power plants in the state. I guess Jerry thinks we can power the state on his recycled speeches. There’s certainly a lot of hot air in them.

Jerry Brown is also after the state’s colleges and universities to cut costs and lower tuition, as California’s budget woes have meant cuts for state aid to higher education, with more cuts ahead if the state’s fiscal picture doesn’t improve. Hmm, let’s see here. I’ve heard of one state lately where state aid to higher education is increasing rapidly. North Dakota. In fact, North Dakota’s rapidly growing budget has been in surplus for quite a while, though I doubt they’ll be interested in investing their surplus in California state bonds.

The pity is that California could easily match North Dakota’s economic and fiscal success. Fuel Fix.com recently estimated that California could edge out Texas as the nation’s leading oil producing state if it wanted to open up some of its land. My pal (and one of the top energy minds around) Mark Mills observed in the Wall Street Journal on Wednesday that California could collect a gusher of revenue and economic growth:

California collects about $15 billion in tax revenues for every billion barrels of state oil production, according to research conducted last year by the University of Wyoming’s Timothy Considine and Edward Manderson. If that is accurate, then simply by opening up Monterey oil development—no incentives, grants or state funds required—tax receipts could total $250 billion over the coming two decades. Economists Robert Hahn and Peter Passell, at the American Enterprise and Milken Institutes respectively, point to another $30 billion to $80 billion in broad economic and social benefits that ripple through an economy for every billion barrels of oil production.

Do the math: The overall economic benefits of opening up the Monterey shale field could reach $1 trillion. One can only imagine the impact on California’s education system, social programs, infrastructure, and even energy-tech R&D. Moreover, with that kind of revenue, Sacramento tax collections could wipe out debt and deficits.

Then there’s this:

A savvy politician might also point out the promise of Silicon Valley developing still more advanced hydrocarbon tech. One can foresee a growing array of software, sensor, materials and big-data startups that underpin the smart controls and data processing central to modern oil production.

Hmm: maybe the next IPO in the hydrocarbon energy sector could live up to the budget dreams of the kleptocrats in Sacramento. But then, Mark notes that this would require a “savvy politician,” and not a moonscape dreamer like Jerry Brown.